Demographic variables in demand systems: An analysis of New Zealand household expenditure 1984-1992

Econometric analysis of household expenditure is an important area of economic inquiry because the estimated demand parameters are particularly useful in many behavioural aspects of demand forecasting and in welfare issues. This paper analyses expenditure patterns in Mew Zealand by estimating, on household budget data, complete demand systems with the following underlying cost function: [image omitted] which has been demographically extended to isolate household composition effects on consumption. This allows comparisons of the consumption behaviour of households and the welfare implications of the demographic parameters. In this paper, several demographically extended demand functions have been estimated and their behavioural and welfare implications compared Price, total expenditure and household size elasticities, computed from the “best” demand functions, are within expectations, and they offer some insights into consumer behaviour